Third-party, off-platform growth has helped Charles Schwab expand its exchange traded fund business by bringing non-Schwab clients into the fold.
Schwab is one of the fastest-growing ETF providers this year, reports Jackie Noblett for Ignites. Assets in Schwab products on third-party platforms almost doubled between June 2012 and June 2014 to $11.7 billion.
“We have been successful in driving off-platform growth,” Eric Pollackov, managing director of ETFs at CSIM, the asset management unit, said in the article.
Schwab ETFs currently hold about $23 billion in total assets under management, and while the firm has not revealed exactly how much of the ETF assets were held on third-party platforms, Pollackov states that it is “meaningful.” [More Please: Investors Want More ETFs, Says Schwab]
CSIM president Marie Chandoha has said that the provider is focusing on the bank trust and defined contribution investment only channels to expand its business, pointing to Schwab’s collective investment trust products are suited to capitalize on trends in those channels. Schwab is also pursing outlets like insurance where ETFs are being held in general accounts and offered within variable annuity products.
Additionally, in the separate accounts space, Schwab has been increasing its ETF presence through its ETF strategist group, Windhaven. The Windhaven ETF managed portfolios held $19 billion in assets under management as of June 30.
“If Schwab continues to build a robust [exchange-traded product] platform and offer ETPs at a very cheap cost, they could sell their menu of products to firms assembling fund-of-fund or managed ETF providers,” Larry Petrone, director of research at kasina, said in the article.
Charles Schwab offers some of the cheapest ETFs on the market. The firm has launched 21 ETFs with an average expense ratio of 0.16% and its cheapest ETF offering has a 0.04% expense ratio. In comparison, the U.S.-listed ETF industry has an average expense ratio of 0.60%.
Schwab has operated as a loss leader, providing a low-cost alternative to ETF giants in the space like BlackRock, State Street Global Advisors and Vanguard. Additionally, Schwab provides commission-free trades on a large group of ETFs. [Schwab Expands Commission-Free ETF Lineup]
The low-cost strategy has allowed the financial firm to boost sales and assets in its funds to the point where liquidity and trading benefits now make them appealing to non-Schwab clients.
“There’s no compelling reason to not look at [Schwab] versus Vanguard,” Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ, said in the article. “They are worthy of being in the discussion for investors looking for well-diversified, low-cost products.”
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Max Chen contributed to this article.